Bybit published a report warning that 16 blockchains embed functions that can freeze or restrict users’ funds, reframing custody risk and the promise of financial sovereignty. The alert impacts exchange users, custodians and stablecoin issuers, and elevates the importance of liquidity management and private key control for traders and asset managers.
Bybit’s Lazarus Security Lab reports that 16 chains contain mechanisms to freeze or modify balances, and that another 19 could incorporate similar capabilities with minor changes. These “kill switches” are not isolated: stablecoin issuers such as Tether and Circle acknowledge the ability to block, seize or burn assets under certain circumstances, challenging the idea that holding a token equals absolute control over the asset.
The publication situates the finding within a regulatory and judicial context: according to the report, the U.S. GENIUS Act, signed in July 2025, requires stablecoin issuers to maintain the technical capacity to seize or block stablecoins when required by law, while in the EU, MiCA has been fully applicable since December 30, 2024, imposing continuity and supervision requirements on crypto service providers.
Law enforcement seizures have already occurred—the report cites a U.S. Secret Service operation for $225.3 million—and forensic tooling supports freezes across multiple chains.
A Debate Over Security vs. Decentralization
The report also highlights the cybersecurity dimension, projecting large-scale hack scenarios—such as a hypothetical attack on Bybit in February 2025 with estimated losses around $1.5 billion—and stressing that operational vulnerabilities and malware remain critical loss vectors.
For traders and managers, kill switches, legal mandates and operational risk translate into greater friction for leveraged and hedging strategies, with freeze risk potentially disrupting liquidity at derivatives expirations and during market stress. From a custody standpoint, the trade-off between CEX convenience and private key control must be reassessed in light of intervention capabilities.
The next milestone is regulatory compliance and operational audits of stablecoin issuers and CASPs during 2025, which will test how these technical capabilities are implemented and how they affect market liquidity. Practically, traders should review counterparties, exposure to stablecoins with blocking features and custody contingency plans to navigate intervention and operational risks.
